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It turns out that the cloud is just a bunch of buildings.
That’s what telecommunications provider Verizon is banking on by buying Terremark, which runs a number of data centers, for $1.4 billion to promote its “everything-as-a-service” cloud strategy.
Verizon announced today that it is buying Terremark for $19 a share — a 35 percent premium on the company’s closing share price of $14.05. Shares of Terremark were up 36 percent in extended trading to $19.07 after the company made the announcement. The deal eats up a good portion of Verizon’s $5.4 billion cash on hand.
But Verizon was already in bed with Terremark after renting out 25,000 square feet of storage space in two of its data centers in Miami, Fla., and Culpeper, Va. Verizon was renting out colocation space, which means other companies that work with Verizon can rent out space for servers that are physically closer to other business networks and speed up their services.
The deal nets Verizon 13 data centers across the world, including a 750,000 square foot center in the U.S., Amsterdam and Brazil. While Verizon is spinning the purchase as a way to advance its cloud services, the deal really boils down to buying a lot of real estate for servers. Verizon can either continue to rent out the data centers or it can plant its own servers. They can be used for either additional data storage or to run applications remotely and stream the results through the Internet.
That deal happened in July last year — so it looks like Verizon has decided to just buy out the space it was already renting. It looks like it was a good time to make the purchase as well, as Terremark has been losing money for the past several years. The company lost $8 million in its most recent operating quarter, and another $8 million in the same quarter a year earlier. The company lost $42 million in 2010 and $10 million in 2009.